On Wednesday, the Department of Energy approved the application of Dominion Energy to export LNG from its Cove Point terminal in Maryland. Originally built as an import terminal, with this approval the facility will undergo extensive retrofitting and upgrading, at an expected cost of $3.4-$3.8 billion.
This approval is important for drillers because it is the first LNG export facility to be approved outside of the Gulf Coast. Cove Point is the terminus of a direct pipeline from Pennsylvania's Marcellus Shale region, allowing direct exports of the gas coming from Pennsylvania. This region has largely suffered because of a lack of natural gas pipeline interconnections with markets; there simply has not been enough capacity to use the record amounts of gas produced from the Marcellus in Pennsylvania. Once this facility is up and running (projected for 2017), Dominion has secured contracts with Japan's Sumitomo and India's GAIL to provide the full capacity of about 1 billion cubic feet per day over 20 years.
This is the fourth approval of LNG exports, and the third approved in less than three months (Cheniere's Sabine Pass facility had been approved in 2011), signaling an acceleration in permit approvals. Secretary Moniz, in his confirmation hearings, had pledged that he supports LNG exports, and President Obama has signaled that he does as well. In meetings with the State Department, they have made clear that their goal is to help create a global market for natural gas, instead of separate regional markets in which monopoly providers (like Russia) can extract political concessions because of their market dominance.
I believe these are laudable goals with a clear vision, but the process of how the Administration is shaping policy in that direction is as clear as mud, even after the DoE approval of the 4th export permit. The Natural Gas Act requires that natural gas exports be deemed to be in the "public interest" before approval, but there is no clear definition of what the "public interest" is. The Administration should more clearly define what that means.
So far, the approved export licenses have been approved in order of application. They have gone to four significant terminals that have clear markets with signed contracts to import the gas, dedicated production to supply the gas, and the infrastructure to support major operations. Each of the applications approved so far were originally made in 2010 or 2011, before it was apparent that LNG would be the next boom.
Now, there are over 25 pending applications to DoE. Continuing along this track of approval in order that the application was made could end up approving some facilities that do not meet those requirements. The truth appears to be that a number of companies have put in applications because it is relatively cheap to put in an application. The Administration will have to clearly state what the order for the next round of applications will be, because there will be political pressure to place a cap on export approvals at some point. The DoE shouldn't reward a company simply for filling in a form early.
Of course, in the end, this may all be a moot point, because the Natural Gas Act deems exports to countries with whom the United States has a Free Trade Agreement to automatically be "in the public interest." The Administration is actively negotiating both the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Participants in these negotiations comprise the vast majority of potential export markets for U.S. LNG, like the UK, Japan, Germany - only China, India, and Turkey would be the major markets left out.
Perhaps the Administration's goal is simply to 'run out the clock' on the current slate of LNG export permits in hopes that these trade negotiations overtake them; it would certainly allow them the luxury of not having to think strategically about which LNG export terminals to approve or not.
Why It Matters
Energy: LNG exports offer a way for natural gas producers to sell their energy at potentially much higher prices than the domestic market.
Environment: Natural gas is cleaner-burning that coal or oil, and so produces fewer greenhouse-gas emissions. But many environmental groups complain that switching to gas fosters continued reliance on fossil fuels.